By Luis Merchan, President and CEO of Flora Growth Corp. (NASDAQ: FLGC)
In the cannabis industry, mergers and acquisitions are crucial, but executing an acquisition can be like dancing on a razor’s edge.
In the beginning, the entrepreneurs who helped set up the early days of the industry were often cannabis people, not business people. For nearly a century, the industry was largely forced to operate on the black market due to the federal ban. In fact, the total US illicit cannabis market has grown to around $ 66 billion in 2019.
The cannabis industry is now transforming into a more legitimate business, completely changing the landscape of human capital or corporate talent. This transition has resulted in organizations now being run by executives who have the know-how to run a business, with a small portion of those executives knowing the ins and outs of the cannabis industry – instead of just be good at raising capital.
All of these rapid developments in the field of cannabis and the constant regulatory updates have created a dichotomy in the industry. This has forced industry leaders to completely rethink their M&A strategies – and the smartest are carefully focusing on the human capital aspect of M&A.
In today’s competitive landscape of the cannabis industry, a few companies are experiencing sustainable growth, while many of the perceived early ‘industry titans’ are shrinking due to poor M&A and allocation decisions. capital. As companies downsize or downsize parts of their business, it’s usually their best employees who are leaving those jobs. Many free agents who are willing to leave their current roles for a new organization do so because they recognize that the challenges on the human capital side are much greater once a company has oversized and tries to resize again. .
This environment creates opportunities for smart new companies that start from scratch to recruit talent, where it is often the smallest (right) size of their organization that enables them to attract the best talent. Indeed, the best people correctly value the growth opportunity and believe that they can positively influence the trajectory of the company in a significant way.
While navigating the highly competitive landscape of cannabis mergers and acquisitions, it’s important for successful business leaders to realize that with an acquisition, you’re not just buying income or distribution of a business – you buy a skill set, a culture, and a group of people that can help improve a rapidly growing organization if managed properly.
A successful merger and acquisition strategy is not just about adding revenue streams and new distribution opportunities – a successful acquisition mostly adds talent that can complement the skills of the current team running the existing business.
Human Capital and M&A: Hoshi International
The Hoshi International leadership team is one of the most experienced âbuild and exitâ groups in the cannabis industry, and a prime example of human capital acquisition. Much of the Hoshi team’s experience comes from Mettrum, which was one of the first licensees to sell to Canopy growth (NASDAQ: CGC) for $ 500 million.
Following this release, part of Hoshi’s Fire and Flower team (NASDAQ: FFLWF), which is the largest cannabis retailer in Canada and, therefore, the largest cannabis retailer in the world. Fire and Flower was also the first retail chain to gain the support of traditional retail groups when Alimentation Couche-Tard, one of the world’s leading convenience store brands, invested in the business. for a participation of 20%. Simply put: The ability of this team to build and operate fundamentally sound businesses is unmatched.
Flora Growth Corp. (NASDAQ: FLGC) recently took a similar minority stake of up to 15% in Hoshi, which provides access to two major assets: one in Portugal and the other in Malta, both of which are gateways major to Europe. . This allows Flora to move its cannabis flower, derivatives and other products to these markets, where they can be processed by one of these two facilities and receive EU-GMP.
So these two strengths really give Flora access to the entire medical market across Europe, and under the agreement we can also dictate how our product moves in and across the world. EU. By anchoring in Hoshi, we obtained preferential rights. When looking to purchase new flowers, the Hoshi team look to their strategic partners. Through this partnership, we are also working to build new distribution points and brand opportunities across Europe.
Unlike traditional ways, where you would buy the business directly, we recognize that with a smaller strategic investment and business plan alignment with Hoshi, we benefit from this infrastructure. We also have in sight a potential short-term liquidity event, a strategic partner that we are helping to build, as well as a team with all the key relationships such as Alimentation Couche-Tard, Fire and Flower and other major players in the States. United, Canada and Europe.
Specifically, in terms of executive leadership in the partnership, we get access to: John Aird, who was a senior management consultant for Aphria, and currently president of Olli Brands; Michael Haines, who helped build Mettrum until his successful exit from Canopy Growth, which catapulted Canopy into the world’s largest cannabis company; David Fowler, their vice president of operations, who came from a large global infrastructure company; Trevor Fencott, who sits on their advisory board and remains the CEO of Fire and Flower; Harvey Shapiro, former president of Emblem Corp and Fire & Flower; and Emily Moeller, who was the director of culture at Bedrocan. This group knows how to create value for its shareholders and partners, as well as to distribute its products on a global scale.
Heimat – Acquisition of the first innovator in the field of hemp smoking products
Heimat sells in more than 2,500 distribution points throughout Switzerland, in almost all grocery stores and convenience stores in the country. This is a perfect example of an existing and traditional CPG, where a product such as a hemp-tobacco cigarette that is pretty much allowed to be sold across the country, has already established access points anywhere you’d like. have one for a CBD- related product.
In this agreement you also have one of the advanced technologies in the manufacture of hemp pre-rolls, thanks to their patented technology. The patent circumvents their ability to convert what is called an MK-9, which is standard in the manufacture of tobacco pre-rolls, into a device for making hemp cigarettes. What Heimat did was they created a device that fits in between the system and basically fixes a big resin issue when making any pre-roll related to cannabis as opposed to tobacco.
The main difference is that cannabis contains a large amount of oil and resin that leaks out of the product, so resin tends to build up in the machine as it continues to run and it ends. by hang and hang. The Heimat technology eliminates this jam and in fact allows you to put out a large amount of hemp cigarettes which are hemp rolls without having to spend hours and hours cleaning the machines. No one in Canada is competing with the prices here.
The tobacco market is a $ 700 billion to $ 800 billion market, if you can cannibalize even a tenth of it you have a $ 70 billion to $ 80 billion market with hemp / tobacco pre-rolls. So this is a completely different market outside of cannabis, you are now heading into big tobacco. Obviously, we all know the size of this market, and this type of product could be sold anywhere.
Ship – Supercharging a Global Ecommerce Strategy
Vessel is a company that creates luxury products including premium vape pen batteries, dry herb devices, and cannabis accessories. The hardware market has greater customer loyalty, access to a large network of multi-state operators, and does not conflict with Nasdaq rules regarding the distribution of THC products. However, beyond Vessel’s exceptional product, there is an even more impressive operations team with some of the best branding and e-commerce skills in the industry.
With a team that has succeeded in increasing revenue stream by over 100% in 2020 and aiming for an additional 100% in 2021, the Vessel team will represent a substantial addition to the human capital assets of Flora Growth.
Going forward, Flora will leverage Vessel’s in-house design, sales and marketing expertise to enhance Flora’s existing global brand and product portfolio. As part of this process, the team will develop a strategic plan to maximize consumer experience and resonance, increase market share and positioning, and reinvigorate the Flora brand portfolio for the global consumer, while remaining loyal. to its roots and values, in order to make each consumption experience more expressive and personal. We’re excited to have the Vessel team join us and help us build a greater global e-commerce strategy across our brands.
The final phase of mergers and acquisitions
Successful entrepreneurs in the cannabis industry should approach their M&A strategy like this: Our company will recruit the best talent from around the world. 2021 is the year of savvy cannabis mergers and acquisitions, and there is an opportunity to buy decent multiples of income. Meanwhile, initiatives that examine these needs must include synergy with human capital and business strategy – getting human capital back in the right places.
Successful cannabis industry leaders will be able to say that they spent their capital better than anyone in the industry. What does that mean? That they’ve invested in people, culture, and ideas – the real engines of this industry – and built the largest network of human capital.